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MOBILE PAYMENTS - Getting the balance right
The mobile payment market is still in the process of sorting which particular schemes 
are most appropriate to different regions and requirements. But it is undoubtedly set to expand says Howard Wilcox
User demand for convenient and intelligent ways in which to make payments for goods and services using a mobile phone is creating exciting opportunities for those organisations that are part of the mobile payment ecosystem. The ecosystem includes mobile operators, banks and credit card companies, retail merchants and transport operators, handset manufacturers (and their suppliers), and a whole range of new software and system vendors and service providers entrants eager to put their innovative mobile payment solutions into the hands of mobile phone users
The definition of a mobile payment is often open to interpretation and can differ from source to source. In a report published this month on Mobile Money Transfer & Remittances, Juniper Research defined a mobile payment as “payment for goods or services with a mobile device such as a phone, PDA (Personal Digital Assistant), or other such device.” As is the case with other, older, payment schemes like cash, the current mobile payment market does not have a single, definitive, payment method and there is substantial variation between what particular scheme is adopted from region to region. Mobile payment schemes vary from the remote methods, such as PRSMS (Premium Rate SMS) schemes for paying for digital content dominating in Europe, to the physical, whereby, in regions such as the Far East and China, users take their mobile phone to the physical storefront to pay for goods via contactless credit/debit card schemes.
There are many different and often competing categories of mobile payments currently available. Juniper Research has taken the approach of segmenting the mobile payments market into three areas:
• Digital and Physical Goods:
Digital goods and services are defined as goods and services that are delivered to a mobile device. Examples include music (ringtones), tickets, infotainment and games, with prices typically between a few cents and $20.
Physical goods and services include almost any consumer items from clothing to electronics equipment to books and CDs. Essentially this is the mobile equivalent of regular ecommerce online purchases of similar items from a desktop or laptop via a fixed Internet connection. Payment is usually handled via credit card and basket sizes are typically much larger than for digital goods bought remotely via a mobile device.
• Contactless NFC
This segment is defined as a “Wave & Pay” transaction where phones equipped with NFC (Near Field Communications) technology are waved in front of a contactless reader in a store or at a purchase point. These purchases usually replace cash and are often for lower value items such as refreshments, newspapers and magazines but also public transport tickets which are higher value.
• Mobile Money Transfer
This is a person to person money transfer between two mobile phones, which can be redeemed for airtime, cash, or used to pay for bills or goods by the receiving party. This includes both national or domestic transfers between people in a single country and also international transfers typically by migrant workers.
Setting the Scene for Money Transfers
This market has generated a lot of interest from the mobile payment ecosystem recently. In developing world economies such as Africa and the Indian Sub Continent there is restricted access to financial and payment services. Only a small percentage of the population has a bank account or a credit card. A larger percentage, however, has a mobile phone or access to one. Not only is there more than one mobile phone per two people in the world, but industry participants frequently discuss the “next billion” subscribers which will come largely from developing countries. Globally, the key statistics tell the story:
• Population: 6.6 billion
• Mobile subscribers: 3.6 billion
• Unbanked and underbanked population: more than 2 billion are unbanked and up to a further 3 billion are underbanked
• ATM machines: 1.5 million
• Bank branches: 0.5 million
The reality is that far more people in countries that are underbanked will have used a mobile phone than will have used an ATM or visited a bank branch. The reach or coverage of the mobile company compared with banks is important: using Ghana as an example, 1 in 20 have a bank account, whereas nearly 1 in 3 people have a mobile. Mobile transactions also cost far less to deliver than either servicing customers at a bank branch or installing ATMs. Therefore, there is significant opportunity to create profitable services to handle even small money transfers and payments, and for mobile network operators to derive additional and much sought after ARPU from handling transactions. Mobile money transfers can extend remittance services to millions of underbanked people in developing countries both in urban and rural areas.
However, a sizeable number of people in developed nations also either do not have a bank account or are underbanked - that is they may only use basic banking functions (sometimes via retail stores), they typically live in a cash-based economy, and use cheque cashing agencies and payday loans. In the USA, for example, recent estimates by the Center for Financial Services Innovation (CSFI) place the underbanked (including unbanked) population at 40 million households (106 million individuals) or around 30 per cent of the whole population. The CSFI’s recent study highlighted the following bank account profiles of this market segment:
The second key area is international money transfers. The vast increase in migrant workers globally has fuelled the number of remittances being sent home to families regularly. The World Bank recently reported that the top three recipients of migrant remittances in 2007 were India ($27 billion), China ($25.7 billion), Mexico ($25 billion). The United States was also the top immigration country in 2005, with 38.4 million immigrants, followed by the Russian Federation (12.1 million), and Germany (10.1 million). The World Bank also reported that recorded remittances to developing countries were estimated to reach $240 billion in 2007. Officially recorded remittance flows reached $337 billion in 2007, but The World Bank stated that the unrecorded flows of money will significantly increase this number. Mobile money transfers enable migrant workers to send money home at lower transaction costs than traditional money transfer services, and enable friends and family at home without bank accounts to access the money.
There is a growing number of (often but not always) new and start-up players providing such money transfer services via mobile phones. There are at least 50 services, pilots and trials around the world, many in the Africa and Middle East region, confirming the potential of this exciting development. In the recent report Juniper found there is enormous potential for those vendors that are part of the mobile money transfer ecosystem. Companies such as Fundamo, Utiba and Trivnet have seen the opportunity, whilst financial services players such as MasterCard and Visa, and traditional money transfer players like Western Union are now addressing mobile money transfer. An ever-growing number of service providers such as Vodafone, MTN and Obopay are addressing the opportunity to provide services.
In the new report, Juniper Research investigates the current state of the emerging mobile money transfers market and provides market projections for subscriber take-up, transaction sizes and volumes for both national (domestic) and international transactions up until 2013. The total incremental arpu opportunity for service providers for both national and international mobile money transfers combined, based on the estimated commission levels that they will be able to charge, is in excess of $5 billion in 2013 globally.
The top 3 regions (W. Europe, Africa and Middle East and Far East and China) will represent over 60 per cent of the global mobile money transfers gross transaction value by 2013. New services and trials are being announced almost every day. Judging from the response from users so far to services like M-PESA and SmartMoney, prospects for these services are excellent, both in developing and developed countries. For many people it has been costly and/or difficult for them to transfer money via existing services even to friends and family: using mobile phones solves the problem.
Howard Wilcox is Senior Analyst – Juniper Research
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